Joint Ownership

Co-ownership is pretty self-explanatory; instead of buying by yourself, you might purchase a house with your spouse, partner, a family member, or even a friend.

What is co-ownership & why do it?

Co-ownership is pretty self-explanatory; instead of buying by yourself, you might purchase a house with your spouse, partner, a family member, or even a friend.

For young people facing high property prices, co-ownership can be a smart strategy: you and your co-owner can pool your savings for a deposit and share the costs of the property, making it more affordable than going solo.

It’s a useful strategy because it can get you into the market sooner or enable you to afford a better property than you could on your own. However, co-owning a property also means you need to understand how the ownership is legally structured and how responsibilities (like mortgage repayments and taxes) are divided. Whether you are buying with your spouse or investment partner, it’s a bit like going into business together – you both have a stake in the asset, so it’s crucial to set things up correctly.

Common Structures: Joint Tenants & Tenants in Common

When you buy a property with someone else, two main ownership structures are available in Australia: joint tenancy and tenancy in common. The difference might sound technical, but it has real implications:

Joint Tenants

This means each owner has an equal share of the property, and a special rule called the “right of survivorship” applies. Right of survivorship means if one joint owner dies, their share automatically passes to the other owner(s). You can’t leave your share to someone else in a will – it goes directly to the surviving co-owner. Joint tenancy is very common for married or de facto couples buying a home together, because typically each partner has 50/50 ownership and they want the other to inherit the property if one passes away. In a joint tenancy, ownership is equal and undivided – you both own the whole property together, rather than each owning a defined portion.

Tenants in Common

This structure allows unequal shares if desired – for example, one person could own 70% and the other 30%, or it can be 50/50, etc. Each co-owner’s share is a distinct portion of the property. Importantly, there is no right of survivorship in this case. If one owner dies, their share doesn’t automatically go to the other; instead, it becomes part of the deceased owner’s estate (to be passed on according to their will). Tenants in common is common for business partners or friends investing together, or even couples who contribute very different amounts, because it lets you legally specify your ownership percentage. For example, if you paid 80% of the deposit and your friend paid 20%, you might choose to hold 80/20 as tenants in common to reflect that contribution. Each of you can sell or dispose of your share independently (with some conditions), and you can leave your share to someone else in a will.

In Summary:

It’s crucial to choose the one that fits your situation. Spouses often choose joint tenancy for simplicity and estate planning reasons, while unrelated investors often choose tenants in common so that each person’s share is clearly defined and can be willed to their own family.

Tax & Lending Implications

Capital Gains Tax (CGT)

CGT is applicable when you sell a property for more than its cost base (learn more in Lesson 1).

If you own a property as joint tenants or tenants in common, your share of the capital gain or loss will be based on your legal ownership percentage, and co-owners are required to calculate and report their individual CGT liability when the property is sold.

Example:

Joint Tenants: Each owner reports 50% of the capital gain or loss, unless an exemption applies.
Tenants in common: In a 60/40 split, one owner reports 60% of the gain and the other 40%, unless a capital gains exemption applies.

It’s important to note that despite joint tenants not having survivorship rights, the ATO treats them as tenants in common for CGT purposes, meaning if one owner were to die, the other would assume the full capital gains liability upon sale.

Land Tax

Land tax is a state tax levied on the value of land owned (often excluding the value of the buildings on it). Not all states and territories charge land tax, and exemptions may apply for primary residences.

The State governments calculate land tax based on each owner’s ownership percentage, along with any other property each owner may own outside of the co-ownership which are located within that specific State.

If both owners do not own any other income-producing property, the ATO will jointly view them as the ‘primary taxpayer’ and land tax is calculated as if they are a single owner. However, if both owners own property outside of the co-ownership, their % interest in the co-owned property will be added to the land value of any other properties and taxed accordingly.

For investment properties, this cost is tax deductible against any rental income you may earn.

Income Tax

The ATO requires that rental income and any applicable deductions (such as interest on the mortgage, repairs, and maintenance) are split according to the owners’ legal shares. This means that even if one partner pays more out-of-pocket for certain expenses, for tax purposes, the split must match the ownership percentage.

Example

Assume a property generates a net income of $45,000 with ownership split at 60% and 40%; multiplying the net income by each percentage gives allocations of $27,000 and $18,000 respectively. This simple calculation demonstrates that each owner’s share of net income is directly proportional to their ownership percentage.

Lending Implications

Aside from taxes, co-owners are typically jointly responsible to the lender if there’s a mortgage. Usually, when you get a loan together, the bank will hold both parties jointly and severally liable – meaning if one person can’t pay, the other is responsible for the full amount. This is worth noting: even if you only own 20%, the bank can ask you to pay 100% if your co-owner defaults. Among yourselves, you might plan to each pay your share of the mortgage, but legally the bank sees both of you as backing the entire loan. So it’s vital to have trust and good communication with a co-owner when it comes to finances.

Co-ownership may also limit how your borrowing power is viewed by lenders if you wish to purchase an additional property. Although you may only own 50% of Property 1, since you are ‘severally liable’, some banks include the full liability of your mortgage, whilst only accounting for your portion of the rental income.

Considerations for protecting your share

Buying with someone else is a big commitment, so it’s wise to put some safeguards in place to avoid disputes or unfair outcomes down the track:

Choose the Right Ownership Structure: As discussed, decide upfront between joint tenancy and tenants in common. If you’re a couple who intend everything to be shared equally and want the survivor to automatically get the property, joint tenancy might be appropriate. If you’re investing with a friend or your contributions are unequal, tenants in common with clearly defined shares could be better. Remember, if you don’t specify, the default is often joint tenants. So make sure the title paperwork reflects your choice.
Co-ownership Agreement: Consider signing a legal agreement with your co-owner that outlines each person’s contributions, rights, and what happens if one person wants to sell or can’t pay their share. This doesn’t have to be very formal if it’s just you and your spouse in a family home (the law provides some protections in that case), but for friends or siblings buying together, a simple co-ownership agreement can save a lot of pain later. It can cover questions like: How will ongoing costs be split? What if one person wants out – does the other get first option to buy their share? How will you agree on a sale price? Having these plans written down can prevent misunderstandings.
Protection in case of Death or Separation: If you’re tenants in common, make sure you have an updated will. Since your share will go according to your will, you want to designate who should get it – maybe your family or even the co-owner, up to you, but specify it. If you’re joint tenants, be aware you generally cannot will away your share (it will go to the other owner automatically). We recommend consulting an estate lawyer to assess your personal circumstances.
Clear Record of Contributions: Keep records of who paid what for the deposit, purchase costs, and ongoing expenses. This is useful not just for goodwill, but if one day you need to adjust the ownership shares or reimburse costs (say one person paid the entire deposit but you own 50/50, maybe the other will pay that back on sale). It also helps at tax time to have evidence of expenses you each paid (though remember, for tax deduction purposes each can only claim their ownership percentage, not necessarily what they paid, as explained above). Documentation avoids “he-said, she-said” scenarios.

Co-owning can be fantastic – you share the burden and each build wealth through property. Just go in with clear eyes and good communication. Treat it a bit like a business partnership: hope for the best, but plan for the what-ifs.

This content is based on information obtained from sources believed to be reliable and accurate at the time of publication, but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no ongoing obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice, and do not constitute financial product advice.

We do not provide tax agent services. The information provided in this article should not be relied upon to satisfy liabilities or obligations that arise, or could arise, under a taxation law or to claim entitlements that arise, or could arise, under a taxation law. You should seek professional tax advice to understand your tax liabilities, obligations and entitlements.